What is private mortgage insurance (PMI/CMHC) and when is it required?

• A. Insurance that protects the buyer's personal belongings.
• B. Insurance that guarantees title transfer remains with seller.
• C. Insurance that protects lenders when borrower has a small down payment; typically required when down payment is less than 20% for conventional loans; triggered by mortgage default.
• D. Insurance that is optional regardless of down payment.

Answer: (C)

Private mortgage insurance is protection for lenders when a borrower makes a small down payment. When the down payment is less than about 20% on a conventional mortgage, the loan carries higher risk for the lender, so the loan is insured. The insurer steps in if the borrower defaults, helping to cover part of the lender’s losses. In Canada, CMHC serves this purpose (along with private insurers), making loans with smaller down payments more accessible. This insurance does not protect the borrower’s personal belongings or the property title, and it’s not about choosing to insure the home itself; it’s about reducing the lender’s risk.